More on the Cellulosic Ethanol “Mandate”

We recently posted about the EPA’s decision to reduce the cellulosic ethanol blending requirement from 500 million gallons in 2012 to somewhere between 3.45-12.9 million gallons, which is 0.69- 2.5 percent of the original “mandate.”

Via Greenwire ($ubscription required), we see that refiners are still required to purchase “credits” from EPA indicating that they are complying with the mandate, despite its impossibility:

The proposal fine-tunes blending mandates for 2012 called for by the federal renewable fuel standard, and EPA said yesterday it expects to require a total use of between 3.45 million and 12.9 million gallons of cellulosic biofuels next year. Officials said the final figure could come out to more or less than the 6.6 million gallons required in 2011.

Charles Drevna, president of NPRA, said given that EPA’s own data show the ethanol industry has produced no qualifying fuel in the past year, the requirement for blenders to either use the fuel or pay EPA about $1 per gallon for a credit makes no sense.

“It’s a tax. It’s a surcharge. It’s ridiculous,” Drevna said.

Drevna said the refining industry will have spent more than $6 million this year to comply with the 2011 minimum volume requirements for cellulosic ethanol and will almost certainly have to purchase credits from EPA again next year.

Next-generation ethanol advocates say that small-scale commercial production of the fuel is just around the corner. When the EPA proposal was released yesterday, one advocate blamed the oil and gas industry for slow progress.

“America’s advanced and cellulosic ethanol industry is rapidly progressing with many technologies proven and biorefinery projects shovel-ready. Yet, advanced biofuel producers continue to sail into a head wind created by tax policy favoring oil and gas,” said Brooke Coleman, executive director of the Advanced Ethanol Council, in a statement.

This would be funny if it weren’t so economically backwards. First, the cellulosic ethanol industry has been just around the corner from massive production capacity for quite a while now. I’m confident that if the mandate stays in place they will eventually produce some, but their inability demonstrates both the complexity of scaling up processes that can be completed in laboratories and the foolishness of attempting to mandate technological feats that don’t exist yet.

Second, the idea that fossil fuel industries are holding them back is bewildering. The price of oil is at an all time high right now, which helps the industry. Second, they have a mandate by the government requiring that fossil fuel companies purchase their product, if only they could produce it.

Finally, its worth really stressing what is going on here. No companies have to this date been able to produce cellulosic ethanol that qualifies by EPA’s definition. Yet, presumably to save face, the EPA has not lowered the cellulosic ethanol “mandate” to zero gallons.

Now, what the mandate actually means is that companies will be heavily fined if they do not blend sufficient quantities of ethanol into the fuel supply — each gallon of ethanol having its own identification number, which is generated when the ethanol is created (of course, companies have to devote significant resources to navigating this regulatory-maze). Being that this ethanol does not exist, rather than facing fines for not being able to buy it, refiners are required to purchase “credits” from the EPA. Essentially, the EPA is requiring them to send them money in lieu of meeting the cellulosic ethanol mandate. The product they are required to use does not exist, and rather than giving them a pass, the EPA requires that they pay for phantom credits, despite not getting anything out of it.

Sooner or later, something will have to give. Consumers have no interest in purchasing more ethanol as its more expensive and their is fear over potential engine damage is not unwarranted. The mandate is continually increasing, yet the ethanol market in the United States is mostly saturated, reaching the “blend wall.” Now the ethanol groups like to pretend this is because they’re being unfairly treated (yeah, they’re definitely getting the short end of the stick — a mandate to buy their product), but there is nothing stopping them from selling increased levels of E85, other than the fact that no one wants to use it.

This is the world we live in. Mandates for fuels that do not exist, and “compliance fees” for companies required to use the nonexistent product. Bravo, EPA. And they wonder why we’re skeptical of governments.